Personal Loan for Salaried Individuals Vs. Self-Employed 

Personal loan for salaried vs self employed

Personal loan for salaried vs self employed

A personal loan is an unsecured credit an individual can borrow from banks and other financial institutions for various personal purposes. With minimum documentation and a hassle-free application process, the borrower can avail of a personal loan for expenditures ranging from home renovation, travel, medical emergency, planning a wedding, etc.  Lenders provide personal loan for salaried and self-employed individuals if they meet all the necessary eligibility requirements that vary marginally between self-employed and salaried. Besides standard documents, additional documents depending on your profession have to be submitted to prove a steady source of income or proof of business existence, balance sheet, etc. Often, income requirements could be much higher while availing of personal loans for self-employed people than salaried employees.

In many cases, self-employed borrowers can avail themselves of higher personal loans than salaried ones. In addition, due to the uncertain nature of businesses, a self-employed professional may be offered a personal loan at a higher interest rate than a salaried individual. While some factors and parameters vary from bank to bank, a good credit history, financial discipline, and past repayment record is something the bank will closely look into, irrespective of whether you are salaried or self-employed. Let us now understand the key differences between personal loans for self-employed and salaried.

Personal Loan for Self Employed

If you are an entrepreneur, small businessman, practising doctor, lawyer, or a chartered accountant, you can avail personal loan under the self-employed category without much hassle. As an independent professional, you will often need funds to expand your business or procure new products and even to do a business trip or a personal holiday. In such times, you can take personal loans from several lenders to fulfil your immediate financial needs.

While banks prefer salaried individuals because of the fixed income they earn every month, it is not too difficult for self-employed individuals to secure this loan to prove their repayment capacity by showing income proof and business growth. Let us understand in detail some of the features, benefits, and other criteria to avail of this loan as a self-employed individual. 

Features 

No security or collateral: Banks do not ask for any security or collateral from the borrowers while offering personal loans.

Hassle-free, paperless process: Minimum documentation, limited proofs are required to avail of personal loans like your ID, address proof, and income proof.

Interest rates: Interest rates of personal loans could be comparatively higher. Because there is uncertainty in the business environment, a self-employed individual may have to give higher interest than a salaried person. 

Large loans: Self-employed individuals are likely to get higher loans than salaried as they have the flexibility to manage cash transactions. Their work tenure could far exceed a salaried person’s tenure. 

Instant loan approval: With limited documentation and processes, personal loans are sanctioned within no time after the borrower applies for it online.  

Flexible repayment tenure: Some banks offer flexible repayment tenure based on their business growth and financial ability. Some lenders allow borrowers to repay the amount after gaining extra funds. 

Personal Loan Eligibility for Self Employed

Loan for Self Employed

– Minimum eligibility age varies between banks. For some lenders, the minimum and maximum age for a personal loan are lower for salaried individuals. 

– You need to have income proof by way of tax returns, profit, and loss statement, bank statement of six months, IT returns

– Proof of profession, which includes registration of the company or business

– A minimum income requirement that varies between banks

– Your business should have been operational for a minimum number of years. This eligibility criterion varies between lenders. While some may ask for a year or 6 months, some seek a minimum of 2 years of existence.

Documents Required for Self Employed Individuals

Type of Proof Documents Required

 

Proof of photo identity (Any one) Passport

Voter’s ID

PAN Card

Driving License

Proof of Residence (Any one) Passport

Aadhaar Card

Utility Bill

Ration Card

Proof of Residence Ownership (Any one) Property documents

Electricity bill

Maintenance bill

Proof of Office Address (Any one) Maintenance bill

Property documents

Utility bill

Proof of Office Ownership (Any one) Maintenance bill

Property documents

Electricity bill

Proof of Business Existence (Any one) Tax registration copy

Company registration license

Shop establishment proof

Proof of Income Income tax returns for the previous two years inclusive of computation of income, audit report, balance sheet, profit and loss account, etc
Bank statement Savings and current bank statement for the past year
Proof of Investment (if any) Investments such as fixed assets, fixed deposits, and shares
Photograph One passport size colour photograph

How to Apply?

  • Login to the bank account, app, or any of the bank’s online services where you can apply for a personal loan online
  • Provide KYC documents and proof of address, type of employment, and income with the application form. Also, provide a cheque for the processing charge.
  • Fill in all the details regarding income and self-employment.
  • The bank will verify the documents, give you the sanction, approve the amount based on your eligibility, and be followed by the signing of the agreement and other forms. Once this is completed, the funds will be disbursed to your account, which may take anywhere between a few hours and a month. 

Details of Personal Loans Offered by Banks and Financial Institutions for Self-Employed –

Banks/Lenders Interest Rate (PA) Loan amount Loan Tenure
ICICI Bank 1125% pa to 1799% pa Up to Rs20 lakh 12 months to 60 months
Fullerton India 20% pa to 49% pa Up to Rs30 lakh Up to 48 months
Yes Bank 1075% pa onwards Rs1 lakh – Rs40 lakh 1 year – 5 years
Kotak Mahindra Bank 1125% – 1999% pa Rs50,000 to Rs15 lakh 1 year – 5 years
IndusInd Bank 1125% pa onwards Rs50,000 to Rs15,00,000 1 year to 5 years
IDBI Bank 13% pa onwards Rs50,000 to Rs10 lakh 12 months to 60 months
Citibank 1600% pa onwards Rs25,000 to Rs30 lakh 12 months to 60 months
HSBC 1099% pa to 1784% pa As per the lender’s terms and conditions 6 months to 60 months
HDB Financial Services Up to 36% pa Up to Rs20 lakh 12 months to 60 months

Personal Loan for Salaried Individuals

Suppose you are working as an employee in an organization, drawing a steady source of income. In that case, you can avail of a personal loan without hassles and realize your immediate financial requirements. From clearing your debts to funding your wedding, you can avail of personal loans for various purposes that are tailor-made to your needs. The organization you work for (private or government), your work experience, and the monthly salary you earn are important factors for lenders while offering personal loans for salaried individuals. Banks prefer salaried individuals over self-employed because of the job security your profession provides and the fixed income you earn every month. As an employee, the higher your salary, the better your chances of securing this loan.

Features 

Quick approval: The application form is easy to fill, and the required documents are minimal; therefore, sanctioning the loan hardly takes time.

No collaterals: You do not have to pledge any security or collateral to avail of personal loans. 

Reasonable interest rates: A salaried individual will get better interest rates on personal loans than a self-employed one because of the steady monthly income that a salaried individual earns. Therefore, there is little scope of uncertainty on repayment here as compared to a self-employed professional.

Loan amount: A salaried individual may not get a higher loan amount than a self-employed individual because of the tax calculation, deductions that employees face every month, and the limited duration of a salaried person earning, which stops somewhere at 58 or 60.

Instant online loans: With the proper documents, the loan can be quickly approved online without any hassle of in-person meetings.

Personal Loan Eligibility for Salaried Employees

Personal Loan Eligibility for Salaried Individuals

– Minimum eligibility age varies between banks. For some lenders, the minimum and maximum age for a personal loan for salaried individuals are lower than self employeed

– You need to provide income proof by way of salary slips of the previous 3 months and form 16

– You should provide the bank statement of the previous six months where salary gets credited

– Proof of income tax returns

– Proof of your employment by way of an appointment letter or an authorized letter 

– A minimum income requirement that varies between banks. The requirement could be anywhere between Rs 10,000 to Rs 30,000, depending on the loan amount being sought,

– A minimum work experience. The work experience could vary between banks and start from 6 months to 3 years, depending on the loan amount and credit history. 

Documents Required for Salaried Employees

Type of Proof Documents Required
Proof of photo identity (Any one) Passport

Voter’s ID

PAN Card

Driving License

Aadhar Card

Proof of Residence (Any one) Passport

Aadhar Card

Utility Bill

Ration Card

Driving License

Proof of Ownership of Residence (Any one) Property documents

Electricity bill

Maintenance bill

Proof of Income Salary slips of last three months along with Form 16

Bank statement of previous six months of the salary account

Proof of Job Continuity (Any one) Employment certificate from the current employer

Proof of experience (relieving or appointment letter from the previous employer along with job certificate)
Appointment letter from the current employer (if employment period exceeds two years)

Proof of Investment (if any) Fixed assets, shares, fixed deposits, etc
Photograph One passport size colour photograph

How to Apply?

  • Login to the bank account, app, or any of the bank’s online services to apply for a loan. You can also visit the branch if required.
  • Provide KYC documents and proof of address, type of employment, and salary proof with the application form. Also, provide a cheque for the processing charge.
  • Fill in all the details regarding income and employer. 
  • The bank will verify the documents, give you the sanction, approve the amount based on your eligibility, and be followed by the signing of the agreement and other forms. Once this is completed, the funds will be disbursed to your account, which may take anywhere between a few hours and a month. 

Interest Rates Offered by Top Banks and Financial Institutions to Salaried Individuals –

Name of the Bank Interest Rate (PA) Loan Amount
HDFC Bank 1075% to 2130% Rs50,000 to Rs15 lakh
ICICI Bank 1125% onwards Up to Rs20 lakh
Axis Bank 12% to 24% Rs50,000 to Rs15 lakh
State Bank of India 1050% onwards Up to Rs20 lakh
Canara Bank 1255% to 1460% At the discretion of the lender
Punjab National Bank 115% to 145% Up to Rs4 lakh
Bajaj FinServ 1299% onwards Up to Rs25 lakh
Yes Bank 1099% onwards Up to Rs40 lakh
Union Bank of India 1210% onwards Up to Rs10 lakh
DCB Bank 13% – 25% At the discretion of the lender

Also Check: Personal Loan Interest Rates

Conclusion

Banks and financial institutions give personal loans to salaried and self-employed individuals once the essential personal loan eligibility criteria are met. Good credit history goes a long way in making sure loans gets approved faster irrespective of your type of employment. While income, age, business stability, work experience, etc., play an important role in loan approvals, one of the essential aspects that banks will factor in is the ability of the individual to repay their loan based on the credit record repayment history and responsible banking. While most of the documents required to avail the loans as a self-employed or a salaried person remain the same, a few additional documents, features, and eligibility criteria are different for both, including interest rates, loan amount, and flexible repayment option, etc. However, a steady stream of income as a businessman or as a salaried employer along with a good credit history will ensure quick disbursal of personal loans